Question mark over Cyprus gas future

WITH global supermajor ENI having lost the game of chicken against Turkey in Cyprus’ economic waters – dramatically demonstrated by the drillship’s second brush with Turkish warships on Friday – it’s time Cyprus reassessed its strategy on hydrocarbons exploration, analysts say.

Friday’s encounter – forcing the Saipem 12000 rig to finally withdraw from block 3 – laid to rest any doubts that Ankara was ready and willing to take on oil and gas multinationals to protect what it perceives as its national interests in the region.

“It was a defeat for the Greek Cypriots, and a humiliating one at that,” comments Hubert Faustmann, a professor of history and political science at the University of Nicosia.

“Two lessons can be gleaned,” he adds.

“First, Turkey is prepared to go further than anyone else. Secondly, that energy firms will now think twice about projects in the Cypriot EEZ unless they are assured of the backing of their respective countries, because it’s now beyond clear that Cyprus, which is responsible for providing security to the drillships, is unable do that.”

Having gambled and lost – at least this bout – a question mark hangs over the future of all gas exploration in the southeast section of the EEZ.

ENI holds the concessions on blocks 2, 3, 8 and 9. A quick look at the map reveals that the largest segments of these acreages are ‘disputed’, in that they lie within what the breakaway regime calls its ‘exclusive economic zone’.

Other than the interrupted drilling at the Soupia (Cuttlefish) site in block 3, ENI are contractually obligated to drill two more exploratory wells in any of their concessions in blocks 2, 3 and 9.

Those concessions were awarded during the second licensing round in 2012 and, having already been renewed once, the licenses are soon set to expire.

The licenses could be renewed, although there has been no word yet from officials.

ENI also have concessions on blocks 6 (with Total) and 8 (alone). Part of block 8 is likewise contested by the breakaway regime, whereas part of block 6 is claimed by Turkey as being part of its ‘continental shelf’. These two blocks were awarded by Cyprus in the third licensing round.

Block 10 (also third licensing round), awarded to ExxonMobil, is not contested by Turkey.

The sizeable Calypso gas find, announced recently by ENI, lies in block 6 but not in an acreage claimed by Turkey.

It’s been suggested that, in retrospect, Cyprus may have made a tactical mistake in awarding the ‘contested blocks’ in the east and southeast to ENI.

Events have shown that the Italian state – which is part-owner of ENI – was not prepared to jeopardize relations with Turkey over block 3.

“Perhaps Total, a French multinational, or ExxonMobil, would not be bullied by Turkey,” offers Faustmann.

“In a sense, it was clever of Turkey to ‘pick on’ the Italians. But we are only speculating here. On the other hand, I don’t think Total or Exxon would be willing either to stand up to the Turkish fleet unless they knew in advance they had the full backing of the nations concerned.”

At any rate, Cyprus’ strategy of testing Turkey’s resolve appears to have backfired, as a result of which energy companies will probably lay low for the time being before embarking on new exploration activities in that part of the EEZ.

For Faustmann, Turkey’s primary motive for blocking Cyprus’ energy endeavours lies in consolidating its influence in the region.

Ankara’s aggressive posture in Cyprus, northern Syria and in the Aegean with Greece, are interrelated – all occurring in the same timeframe.

“By establishing a claim, with the use of force or the threat of force, you then gain more leverage.”

Turkey was also driven by a desire to ‘put Cyprus in its place’, as it were.

Turkish president Tayyip Erdogan was not about to lose face when dealing with a minor player like Cyprus.

Facing elections in 2019, it would behove Erdogan to play up the nationalist card.

“At this stage, and even though Erdogan is more moderate than other nationalist forces in Turkey, as bizarre as that may sound, he does not think that a Cyprus settlement will earn him votes,” notes Faustmann.

“So ultimately it’s more about power politics and less about forcing Greek Cypriots back to the negotiating table.”

According to the analyst, the upshot of the standoff in block 3 can be summed up thus: the hydrocarbons issue is now officially linked to a settlement of the Cyprus problem.

In short, the Greek Cypriots’ strategy of rhetorically separating the two issues has failed.

On the flipside, even if a new round of reunification talks were to commence in earnest, that does not guarantee a positive outcome, as under the current circumstances Turkey is less likely to play ball, having already put the Greek Cypriots on the defensive.

Which means that Cyprus must carefully consider its next moves on the diplomatic scene.

Caught in a vice, Nicosia could offer assurances to the Turkish Cypriots that they will share in the hydrocarbons wealth.

The assurances should be specific and tangible, given that to date Greek Cypriots have flip-flopped and been vague on what Turkish Cypriots’ participation actually constitutes.

While agreeing with this assessment, energy analyst Charles Ellinas wonders whether such concessions would be enough to assuage the Turkish side at this juncture.

“Be that as it may, Greek Cypriots should at least establish a sovereign hydrocarbons fund with explicit provisions for setting aside a share of the proceeds for the Turkish Cypriots. At least that would indicate that Greek Cypriots are sincere on that point.”

But by no means should Cyprus put on hold its exploration programme, stresses Ellinas.

“The longer we wait, the further markets slip away, and the tougher it gets to sell the gas. Ultimately that benefits no one – neither Greek Cypriots nor Turkish Cypriots.”

For one thing, ENI are prepared to wait it out before returning to the Cypriot EEZ, as indicated by the company’s CEO Claudio Descalzi on Friday.

Source: Cyprus Mail